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Payoff Mortgage Early?

Chris Farrell Jan 18, 2008

Question: I plan to retire most likely sometime next year. I have a 30 year fixed at about 6.5%. I’m 5 years into the payments. If I have the liquidity to do so, should I pay off my mortgage?

Answer: One of my favorite financial advisors, Henry “Bud” Hebeler, recently sent me his answer to this question. I’ve answered this question on the blog so I thought I’d like to share his response to give you another perspective.

Bud was president of Boeing Aerospace, and when he retired he was disgusted with much of the financial advice offered to future and current retirees. He now runs a website––that‘s full of good advice.

Here’s his answer: The technical answer is that IF the after-tax earnings on your investments is more than the after-tax interest on the debt, you shouldn’t pay down the mortgage.

The problem is that you have to guess at returns over the next 20 to 30 years and hope that there are no huge market drops. Also, you have to guess whether you’ll be able to deduct mortgage interest over a long period. For those reasons, many financial planners believe you should pay off the mortgage early. I think you also have to consider the amount of money you have left after paying off the loan, and whether you could get as good a deal on a new loan should you ever need one considering such things as the future interest rates and paying closing costs again. You might want to make a side-by-side comparison of your two alternatives using one scenario starting in 1948 (a very good year to retire) and then changing to a 1965 (a very bad year to retire) comparison using the Dynamic program on

When things are uncertain, I’m often in favor of a compromise. Perhaps you could pay off half of your loan or accelerate payments should you be able to do this without loan penalties.

I like the compromise idea. Too much of personal finance is divided into an either/or construction when compromise is often the best solution.

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